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Princeton Capital Blog

Treasury Invites Taxpayers to Get Refunds by Debit Card

March 31st, 2011

The U.S. Treasury wants to quit writing paper checks. At the same time, it wants to give taxpayers more choices.

Its latest effort consists of a pilot program to deliver tax refunds through prepaid debit cards. About 600,000 taxpayers earning $35,000 a year or less have received letters inviting them to activate a debit card that can receive direct deposits.

An estimated nine million households, about one in every 12, don’t have bank accounts. By activating the debit card for a tax refund, they wouldn’t have to pay a check-cashing fee, and the government would save the cost of producing a check.

Each tax refund check costs the government about $1, including the cost of processing roughly 600,000 claims each year for missing checks. Payments by direct deposit cost the government about 10 cents.

The pilot program will provide consumers with a debit card that can be used, not just for receiving refunds, but also for shopping with many features of a checking account.

Deputy Secretary of the Treasury Neal Wolin, quoted by Bankrate.com, says the debit card “can be used for everyday financial transactions, such as receiving wages by direct deposit, withdrawing cash, making purchases, paying bills and building savings safely, giving users more control over their financial futures.”

Half of the 600,000 offers from the Treasury test program will carry a monthly fee of $4.50. The rest will be free. The different approaches will allow Treasury to determine which is more likely to lead consumers to sign up for the card.